CHINA’s well-choreographed economic machine has been dancing out of step recently, and it seems that every
other bit of information coming out of the country suggests that the world’s
second-largest economy is in a mess, and much of its vaunted growth over
the past decade has been partly due to government’s expert massages – like many
suspected.

New research
now suggests that China’s investment in Africa, far from being so dominant that it
was practically annexing the continent, has been overstated.

The study by the Brookings Institution shows that the notions that Chinese investment in
Africa is massive, aimed primarily at natural resources, or concentrated in
countries with poor governance records, are largely myths not backed up by
data.

What is true
is that China has emerged as Africa’s largest trading partner, and there is a
growing volume of Chinese FDI in the continent, some of it taking the form of
high-profile natural resource deals in countries with poor governance track
records like Angola and Sudan.

But the
Brookings research shows that this is not by any means the only, or even the
dominant, form of Chinese investment in Africa.

First, on the
scale of China’s direct investment in Africa, Chinese statistics on what they
call “overseas direct investment” (ODI) show a stock of $26 billion in Africa
as of the end of 2013.

This figure
would amount to about just 3% of total foreign direct investment (FDI) on the
continent. UNCTAD’s World Investment Report 2015 similarly finds that the flow of Chinese FDI to
Africa during 2013-2014 was 4.4% of the total to the continent.

The European
Union countries, led by France and the UK, are overwhelmingly the largest investors in Africa, the study shows. The US is also significant, and even South
Africa invests more on the continent than China does.

“Clearly,
China’s FDI does not meet the extreme heights many believe,” the researchers
say.

Second, the paper wanted to find out if it was true that Chinese
investment was concentrated in natural resources.

The
researchers found that other things equal, African countries that are more
resource rich attract more Chinese investment. However, this effect is about
the same for Western investment, and it is only one factor determining
investment.

For example,
Chinese ODI is also influenced by the size of the domestic market, indicating
that some of it is aimed at serving that market, and not just extracting
natural resources and shipping them to China.

Crucially,
the researchers went beyond aggregate data and looked at firm-level data
compiled by China’s Ministry of Commerce (MOFCOM); all Chinese enterprises
making direct investments abroad have to register with MOFCOM.

The resulting
database provides the investing company’s location in China and line of
business. It also includes the country to which the investment is flowing, and
a description in Chinese of the investment project. However, it does not
include the amount of investment.

The data shows that between 1998 and 2012, about 2,000 Chinese firms were operating in 49 African
countries.

In terms of
sectors, these investments are not concentrated in natural resources. Services
are the most common sector; and there are significant investments in
manufacturing as well.

In terms of
countries, Chinese investment is everywhere—in resource-rich countries like
Nigeria and South Africa, but also in non-resource-rich countries like
Ethiopia, Kenya, and Uganda.

The paper
also found that Chinese ODI is more concentrated in capital-intensive sectors
in the more capital-scarce countries, suggesting its importance as a source of
external financing to the continent.

Finally, we
examine the relationship between ODI and two governance indicators: a measure
of property rights and the rule of law, and an index of political stability.
Total FDI, other things equal, is concentrated in countries with better rule of
law. Chinese ODI is indifferent to the rule of law measure, but on the other
hand is positively correlated with political stability.

This finding means that
Chinese investment is not concentrated in poor rule of law countries.
Indeed, the biggest recipient on the continent is South Africa. But it does
mean that China’s investment is more visible in the poor rule of law countries
because China has invested in those locations whereas Western investment
generally stayed away from them.

Countries in
which China’s share of investment is large include Angola, Burundi, the Central
African Republic, the Democratic Republic of the Congo, Eritrea, Guinea, and
Zimbabwe.

The researchers
say their paper provides a more nuanced and accurate picture of China’s direct
investment in Africa.

Ultimately, with
China in a tailspin, the country is likely to pull back on investment into the
region.

This will hit
certain African countries hard, particularly the ones above – the Angola’s,
Congo’s and Zimbabwe’s – which, on the one hand, could make their regimes even
more repressive, in a bid to stave off discontent and consolidate their rule.

But the
squeeze could also be the spark that leads to reform and change in some
long-suffering countries.